Luxury trade association Walpole is calling for the restoration of duty-free shopping for tourists which it says could drive direct retail sales of at least $1.5billion (£1.2billion) a year and attracting an additional 600,000 visitors to Britain.
The group, which has around 250 members including famous brands, retailers and hotels including Burberry, Claridge’s, Harrods, The Macallan and Wedgwood, commissioned a report saying the UK has lost vital income since quitting zero-rated purchases on December 31, 2020.
The government’s decision to withdraw the VAT scheme on retail exports made Britain the only European country not to offer duty-free shopping to non-EU tourists, which at the time was considered by several parties as a counter-productive decision.
Walpole’s report, titled What it’s worth: Enabling the return of the £30billion high-end tourism sector, was launched on Monday at the British Luxury Summit. It includes testimonials from several businesses about the role tourism played in the UK economy before the pandemic, while highlighting the loss of revenue – due to the abolition of duty-free shopping – in markets such as Italy and the France.
With Queen Elizabeth’s Platinum Jubilee celebrations fast approaching and Covid-19 restrictions lifted in many countries, Britain is set to see bumper retail sales from travellers. However, based on recent track records, the omens are not great. According to data from tax-free specialist Global Blue, there is now a clear difference in retail purchases in the UK and Europe.
Comparing US visitor spending in the EU and Britain in pre-pandemic Q4 2019 versus Q4 2021, US shopping in the EU is down 91% while the UK is not is only 49%. An even worse disparity is seen in another crucial segment: spendthrift visitors from Gulf Cooperation Council (GCC) countries such as Qatar, Saudi Arabia and the United Arab Emirates. In the same quarters, their retail spending was up 153% in the EU, but Britain was only up 60%. This is a particular concern given that the GCC previously accounted for 26% of Britain’s tax-free spending.
Harrods pivots to Knightsbridge and Heathrow
GCC nationals had a fondness for one store in particular: Harrods. Before the pandemic, the luxury department store accounted for half of Middle Eastern spending across the UK “But our footfall is now 30% below 2019 levels and it will probably take us two to three years to make a full recovery,” said Michael Ward, chief executive of Harrods. “With many high-value tourists now shopping in the EU, we had to make our shops different from those in Paris.”
What Harrods does today is create unique presentations such as its Prada Chalet pop-up or the Gucci x Balenciaga collaboration. “Today, if a wealthy person buys a handbag at Harrods in London, it may no longer be zero-rated, but they will buy it because they know it doesn’t exist anywhere else,” Ward said. However, this strategy requires a lot of extra work.
At the airport too, where the tax-free regime is no longer either, Harrods has effectively commodified its stock around holiday pick-me-ups. “Travellers are no longer buying £1,000 handbags when departing from Heathrow airport due to the £200 VAT savings, but will buy a £200 swimsuit or polo shirt instead “, added Ward.
Tourism – both domestic and international – contributed 4% of UK GDP in 2019 with a value of £85bn. Of that, £30bn has been allocated to high-end tourists, defined as those staying in luxury accommodation, including five-star hotels. These visitors generally spend 14 times more than the average.
In a statement, Walpole said: “A pound spent by those staying in premium accommodation in the UK generates £8 of value in other industries, such as culture, entertainment and luxury shopping, which in turn support the 160,000 jobs in British luxury. sector.” This “virtuous circle” also determines the desirability of Britain as a destination.
In addition to tax-free purchases, the What it’s worth The report explores the potential for other initiatives to attract high-end tourism and the resulting economic growth, including a broader international e-visa waiver program and extended Sunday trading hours at outlets. luxury retail in the West End and Knightsbridge.
Before launching its UK report, Walpole, in partnership with luxury associations from the European Cultural and Creative Industries Alliance (ECCIA), commissioned Bain & Co to produce a pan-European study. High-end tourism, a powerful engine for Europe explores the impact and value of this segment for the European economy. The report, produced under the chairmanship of the Italian luxury association Altagamma, will be published this summer.